A business law blog published by the business lawyers at AttorneyBritt - Gary L. Britt, CPA, J.D. Commentary and information regarding the laws and regulations applicable to individuals, corporations, partnerships, and limited liability companies (LLCs); as they relate to the myriad of business transactions, contracts, and agreements every business owner, shareholder, member, physician, and/or health care provider must consider.

Monday, February 9, 2015

POM Wonderful’s advertising claims were false and deceptive. That’s the conclusion of the United States Court of Appeals
in upholding the FTC’s ruling. We think it’s a momentous victory for
our two clients: American consumers and the cause of truth in the
marketplace. You’ll want to read the entire opinion,
of course, but here are twelve quotes from the D.C. Circuit’s decision
that businesses, attorneys, and law enforcers will be citing for years
to come.

“The FTC Act proscribes – and the First Amendment does not protect – deceptive and misleading advertisements.”
Companies often cite the First Amendment as a defense in FTC cases.
They forget the foundational principle that misleading ads get no
constitutional protection.

“The Commission had no obligation to adhere to
notice-and-comment rulemaking procedures before imposing liability in
its adjudicatory proceeding.” POM claimed that the FTC had to
undertake a rulemaking – rather than bringing a lawsuit – because it was
imposing a major change to its substantiation standard. Wrong on two
counts, the Court concluded. First, the FTC is “not precluded from
announcing new principles in an adjudicative proceeding.” But the bigger
point is that the legal principles the FTC applied were well-settled
“business as usual” standards. As the Court held, “With respect to POM’s
establishment claims, the substantiation standard applied by the
Commission is consistent with Commission precedent. When an advertiser
represents that claims have been scientifically established, the FTC has
long held the advertiser to the level of evidence required to convince
the relevant scientific community of the claim’s truthfulness.”

“The Commission is often in a better position than are courts
to determine when a practice is deceptive within the meaning of the FTC
Act, and that admonition is especially true with respect to allegedly
deceptive advertising since the finding of a § 5 violation in this field
rests so heavily on inference and pragmatic judgment.” Courts
give administrative agencies a lot of deference when it comes to
subject matters within their purview. For the FTC, that includes
determinations of what an ad conveys and when it’s deceptive under
Section 5. Why such a standard? Given its decades of collective
institutional experience, that’s the FTC’s bread and butter.

“The Commission examines the overall net impression left by
an ad and considers whether at least a significant minority of
reasonable consumers would likely interpret the ad to assert the claim.”
Nothing new there, but the D.C. Circuit offers a succinct reminder of
that touchstone. People can interpret ads more than one way and
advertisers must substantiate all reasonable interpretations consumers
take from their ads.

“In identifying the claims made by an ad, the Commission
distinguishes between efficacy claims and establishment claims. An
efficacy claim suggests that a product successfully performs the
advertised function or yields the advertised benefit, but includes no
suggestion of scientific proof of the product’s effectiveness. An
establishment claim, by contrast, suggests that a product’s
effectiveness or superiority has been scientifically established.”
This, too, should be old hat for advertisers. If an ad conveys an
efficacy claim, the advertiser needs a reasonable basis to support it.
The FTC analyzes that under the Pfizer factors the type of
product, the type of claim, the benefit of a truthful claim, the ease of
developing substantiation for the claim, the consequences of a false
claim, and the amount of substantiation experts in the field would
consider reasonable. But once advertisers claim to have a certain level
of proof, they’ve upped the ante and “must possess the specific
substantiation claimed.” What if an ad conveys a non-specific
establishment claim – for example, by saying that a product has been
“medically proven” to work or by using visuals that suggest it’s “based
upon a foundation of scientific evidence”? In that case, the advertiser
“must possess evidence sufficient to satisfy the relevant scientific
community of the claim’s truth.”

“When an ad represents that tens of millions of dollars have
been spent on medical research, it tends to reinforce the impression
that the research supporting product claims is established and not
merely preliminary.” The Court quoted the Commission’s opinion
to reject POM’s contention that it wasn’t making establishment claims.
The company said that it mentioned medical research just to explain the
context so consumers could evaluate things for themselves. The Court
didn’t see it that way: “Here, however, the advertisements go beyond
merely describing specific research in sufficient detail to allow a
consumer to judge its validity.” In fact, “The study results are
referenced in a way that suggests they are convincing evidence of
efficacy.” What’s more, POM’s ads “invoked medical symbols, referenced
publication in medical journals, and described the substantial funds
spent on medical research, fortifying the overall sense that the
referenced clinical studies establish the claimed benefits.”

“The use of one or two adjectives does not alter the net
impression, especially when the chosen adjectives (such as “promising”)
provide a positive spin on the studies rather than a substantive
disclaimer.” That’s a quote from the FTC opinion cited
favorably by the D.C. Circuit. POM tried to disavow its numerous
establishment claims by arguing that it just said the scientific
research was “promising,” “initial” or “preliminary.” As the FTC
countered, “Those sorts of modifiers do not neutralize the claims made
when the specific results are otherwise described in unequivocally
positive terms.” The message to marketers: Don’t sprinkle a few
adjectives here and there and expect them to undo the net impression
conveyed to the buying public.

“In reviewing whether there is appropriate scientific
substantiation for the claims made, our task is only to determine if the
Commission’s finding is supported by substantial evidence on the record
as a whole. When conducting that inquiry, we are mindful of the
Commission’s special expertise in determining what sort of
substantiation is necessary to assure that advertising is not
deceptive.” The Court again deferred to the FTC’s
stock-in-trade: ascertaining the kind of proof companies need to support
their ad claims. The opinion carefully evaluated POM’s purported
evidence and why the FTC was correct in concluding that it fell short.
You’ll want to read the opinion
for the details, but one thing that caught our eye was the number of
times the Court observed that POM made broad claims in its ads about the
nature of the scientific evidence while ignoring serious flaws:

“POM touted the results of the second Ornish study in its ads
and promotional materials without noting the study’s limitations or
acknowledging that patients in the treatment group showed no
statistically significant improvement in blood flow on two of three
measures.”

“POM, however, made no mention of the limitations of the Pantuck study in its public statements."

“In its public statements about Dr. Padma-Nathan’s study, POM made
no mention of the negative results with respect to the validated IIEF
measure.”

“In 2009 and 2010, POM similarly touted the GAQ findings – again
without any mention of the negative IIEF results – on websites and in
print ads.”

A related example cited by the Court is where POM “repeatedly
touted the results of Dr. Aviram’s limited CIMT study without noting the
contrary findings in Drs. Ornish’s and Davidson’s later and larger
studies.” What can advertisers take from that? Don’t latch on to one
intriguing tidbit to the exclusion of bigger, better evidence. Put
another way, rather than searching for the one potentially favorable
needle, evaluate the haystack of relevant science.

“In finding petitioners liable for deceptive ads, the
Commission determined that petitioners’ efficacy and establishment
claims were misleading because they were unsubstantiated by RCTs. We
have upheld that approach in this opinion.” The FTC’s experts
in cardiology and urology testified that randomized, double-blinded,
placebo-controlled clinical trials are necessary to substantiate claims
that a product treats, prevents, or reduces the risk of disease, a
conclusion the Court upheld. Why RCTs? Because methodologically sound
studies build in procedures – control groups, the random assignment of
test subjects, double-blinding, etc. – that work together to ensure the
reliability of the results. Furthermore, the RCT requirement is nothing
new: “With respect to POM’s efficacy claims, the Commission arrived at
its RCT substantiation requirement by applying the traditional Pfizer factors. That conclusion coheres with past Commission decisions applying Pfizer, including Pfizer itself.”

“Petitioners contend that it is too onerous to require RCTs
to substantiate disease-related claims about food products because of
practical, ethical, and economic constraints on RCT testing in that
context. The Commission was unpersuaded by that argument, and so are
we.” Good science takes time and money. But that doesn’t
change advertisers’ obligation to support disease-related claims for all
products – including foods – with randomized clinical testing. What’s
more, POM said it spent “$34 million in medical research,” including
several RCTs. The point here is that if you’re investing in clinicals,
it’s wise to use testing methodologies designed to yield reliable
results and to evaluate those results with objective eyes. What if a
company doesn’t want to do that kind of testing? The Court cited the
FTC’s position that “the need for RCTs is driven by the claims” that an
advertiser has “chosen to make.” Simply put, if you’re not prepared to
meet the RCT standard, don’t make the kind of claims that require it.

“Individuals may be liable for FTC Act violations committed
by a corporate entity if the individual participated directly in the
deceptive practices or acts or had authority to control them.”
Former POM President and COO Matthew Tupper challenged the Commission’s
decision to hold him individually liable, arguing that the company’s
co-owner Lynda Resnick had the “final say” on the ads. The Court
rejected the assertion that individual liability under the FTC Act
extends only to those with “final say” over deceptive acts or practices.
The Court also rebuffed his claim that the FTC had the burden of
proving he knew POM’s ad were misleading. “When the Commission does not
seek restitution or monetary penalties, the FTC Act imposes a strict
liability standard and creates no exemption . . . for unwitting
disseminators of false advertising.”

“. . . [T]he injunctive order’s requirement of some RCT
substantiation for disease claims directly advances, and is not more
extensive than necessary to serve, the interest in preventing misleading
commercial speech. We reach the opposite conclusion insofar as the
remedial order mandates two RCTs as an across-the-board requirement for
any disease claim.” Based on the facts of this case, the Court
scaled back the portion of the Commission Order that required two RCTs
for all disease claims. An evaluation of the Court’s rationale offers
guidance for advertisers and the FTC. Most importantly, the Court put
the emphasis on quality, not quantity, and offered this hypothetical:

Consider, for instance, a situation in
which the results of a large-scale, perfectly designed and conducted RCT
show that a dietary supplement significantly reduces the risk of a
particular disease, with the results demonstrated to a very high degree
of statistical certainty (i.e., a very low p-value) – so much
so that experts in the relevant field universally regard the study as
conclusively establishing clinical proof of the supplement’s benefits
for disease prevention. Perhaps, moreover, a wealth of medical research
and evidence apart from RCTs – e.g., observational studies – reinforces
the results of the blue-ribbon RCT. In that situation, there would be a
substantial interest in assuring that consumers gain awareness of the
dietary supplement’s benefits and the supporting medical research (and
without any qualifiers stating, misleadingly, that the evidence is
“inconclusive.”)

What we take from the Court’s decision is that there could be a
single study that is large, well-designed, well-conducted, and
consistent with the entire body of relevant and reliable scientific
evidence that it would be sufficient to support a disease claim. Of
course, there could be claims the very nature of which might militate in
favor of multiple RCTs and the Court left that door open: “That is not
at all to say that the Commission would be barred from imposing a
two-RCT-substantiation requirement in any circumstances.” The Court
simply concluded that a one-RCT standard was appropriate in light of the
record before it in POM.